Singapore Telcos - Maybank Kim Eng 2018-04-02: Everything On HOLD

Singapore Telcos - Maybank Kim Eng 2018-04-02: Everything On HOLD Singapore Telco Stocks SINGTEL Z74.SI M1 LIMITED B2F.SI STARHUB LTD CC3.SI

Singapore Telcos - Everything On HOLD

Base case priced in – Upgrade to NEUTRAL view 

  • With the Singapore telcos de-rating close to levels we envisage in our base case scenario of gradual erosion in incumbents’ revenues, we upgrade StarHub and M1 in this note to HOLDs and our sector view to NEUTRAL. However, it is still too early to be positive on the sector with new MVNOs and TPG set to launch in 2H18, and neither can we write off the worst case scenario risk we painted in our 13 March 2018 Sector Note: Singapore Telcos - TPG Scenarios ~ The Base, The Blue Skies & The Ugly. .
  • Singtel’s geographically diversified structure offers relative resilience to Singapore risks but it also faces potential competitive challenges in its other major markets. In the sector, we prefer Singtel.

A taste of things to come 

  • Following TPG’s teaser announcement on 19 March 2018 offering free SIMs, unlimited voice and 3GB/month data for senior citizens for 24 months, the Singapore focused StarHub's share price and M1's share price have derated by 5% and 2%, respectively. 
  • Regardless of the fact that TPG’s segment is niche and that the full mechanics have not yet been revealed, we believe the market took it as a sign that TPG intends to put up a fight for share. 
  • By playing the good corporate citizen card, not only did TPG create public goodwill but we believe it also helps it to negotiate building and housing access for its nationwide coverage rollout by end-2018.

The de-rating is not excessive 

  • Per our base case scenario for the industry that TPG (TPM AU, Not Rated) and the various MVNOs attain a less than 10% industry wireless revenue share by 2019E, we think the stocks are not at particularly compelling value levels yet. 
  • We do note that cash dividend yields even in the 2019E pressure point may pique interest at 5%-7% levels for the three telcos.

Watching closely 

  • Although TPG’s stated purpose at the onset was for only 5-6% market share, we cannot discount our worst case scenario that tariff wars ensue and a more aggressive market share grab takes place. Incumbents attempting to stay out and let MVNOs compete with TPG for a lower income segment is ideal but contamination is always possible. 
  • Our sensitivity analysis shows that every 1% change in wireless revenue would impact core profits and TPs by 1% to 3%.

Luis Hilado Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-04-02
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.690 Same 3.690
HOLD Upgrade SELL 1.630 Same 1.630
HOLD Upgrade SELL 2.270 Same 2.270